We tend to think about retirement as a single date marked on the calendar, perhaps celebrated with a small party. But to the federal government, retirement is more complicated. You need to reach certain ages before you can unlock benefits like Social Security, Medicare, and even penalty-free access to your retirement funds.
Here are six of these milestones everyone should mark on their calendars even if they don't plan to retire for a while.
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1. Age 50: You become eligible for catch-up contributions
Adults 50 and older may make catch-up contributions to their retirement accounts. These vary by account type. In 2022, older adults may contribute up to $6,000 more to their 401(k)s and $1,000 more to their IRAs, bringing their annual contribution limits to $27,000 and $7,000, respectively.
You don't have to wait until your birthday has passed before you begin making these contributions. As long as you'll be 50 or older by the end of the year, you're good to go.
2. Age 59 1/2: You can make penalty-free retirement withdrawals
Prior to 59 1/2, it's difficult to withdraw funds from your retirement accounts without paying a 10% early withdrawal penalty. There are exceptions for Roth IRA contributions because you've already paid taxes on these. And you can also tap your retirement savings early if you have large medical bills, you're paying for higher education, or you're making a first home purchase, among other things.
But if you don't qualify for one of these exceptions, you'll pay a fee to access your retirement funds. While many retire after this age, those who plan to retire sooner will need to stash some money in a taxable brokerage account or a savings account where they can access it at any time.
3. Age 62: You become eligible for Social Security benefits
Seniors can claim Social Security as early as 62 if they wish, but doing so will shrink the amount of their checks. If you sign up as soon as you become eligible, your checks will be up to 30% smaller than your primary insurance amount (PIA) -- the full benefit you qualify for based on your work history.
It can be smart to claim social security early if you have a terminal illness or a health history that leads you to believe you won't live long. Some people also decide to claim early because they need the extra help their benefit checks provide to stay on top of their bills.
4. Age 65: You become eligible for Medicare
Seniors become eligible for Medicare at 65. Prior to this age, they'll need to rely upon health insurance from an employer or a private health insurance policy.
Once you sign up, the federal government takes the cost of your Medicare Part B premiums out of your Social Security checks if you're already claiming those. Otherwise, you'll get a bill for your premium costs.
5. Age 66 or 67: You reach your full retirement age
Full retirement age (FRA) is the age at which you become eligible for your PIA based on your work history. Claiming before you reach this age shrinks your checks, while delaying benefits past this age increases them. Some people choose to sign up at their FRA as a happy medium between claiming early and claiming late.
Your FRA depends on your birth year. For those born between 1943 and 1954, it's 66. Then it rises by two months every year thereafter until it reaches 67 for those born in 1960 or later.
6. Age 70: You qualify for your maximum Social Security benefit
Every month you delay Social Security increases your benefit until you reach 70. People who expect to live into their 80s or beyond and can fund retirement on their own up until this point may choose to delay benefits until 70 in the hope of securing a larger lifetime benefit. But since they're receiving fewer checks over the course of their lifetime, it takes a while for the larger payments they receive to catch up before the total amount received begins to tip in favor of these late claimers.
Keep these dates in mind as you move closer to retirement, and try to prepare for them in advance. Thinking about when you plan to claim Social Security and how you'll fund your retirement at every stage can help you avoid surprises later.
